In a volatile economic landscape, the importance of prudent financial planning and savvy saving strategies becomes more critical than ever.
When inflation is high, the value of money seems to shift like sand beneath our feet, with a knock-on effect on interest rates and the cost of living. Despite this, it’s encouraging to see many individuals and families continuing to explore ways to save.
According to Himal Parbhoo, CEO of FNB Cash Investments, “Fixed deposits, tax-free accounts, and savings accounts are some of the most popular ways to save money for the average South African. However, it’s crucial to make sure that your money is working for you, as inflation can impact the value of your savings.
“During high inflation and market volatility, people who keep their savings will not lose value unless they decide to withdraw the cash. Interest on savings may be lower compared to the inflation rate, but the value of their savings is steady and doesn’t lose any value.”
Parbhoo explains that “there’s no one-size-fits-all approach when it comes to saving solutions, as it’s dependent on one’s circumstances and goals. Hence, it’s important to explore several solutions to cater for each individual’s or family’s needs.”
He recommends some of the following options:
- A fixed account might be a decent alternative for someone searching for a guaranteed return on investment. For people who don’t require instant access to their money, fixed accounts are among the best savings options. It offers a guaranteed interest rate for a set period. Since the interest rate will not decrease even if prices rise, this can help people shield their savings from the consequences of inflation.
- A tax-free savings account can be a better option if you’re hoping for tax-free growth. Additionally, a tax-free account provides a tax-free investment environment, which may enable you to accelerate the growth of your funds. One of the best investment vehicles for those who are saving for retirement or other long-term goals, or who are setting up investments for their children, is a tax-free account. It’s crucial for people who wish to invest using the tax-free option to be aware of the limit on how much they can put into an account each year.
- Savings accounts provide a flexible option to save money. Savings accounts often have lower interest rates than fixed accounts, but they also provide you the freedom to access your money anytime you need to. This can be beneficial and used as an emergency fund.
“You don’t need to halt or pause saving or investing because of a temporary economic difficulty. Saving during higher interest rate periods increases the income you earn over this time. The earlier you begin saving, the more you give yourself a better chance to grow your savings and be better off over the long term.
“If you have debt that is linked to the movement of interest rates, be it a car or a bond, the cost of your debt increases with inflation. Therefore, it is advisable to pay it off as quickly as you can. It might be challenging to stick to your budget in the face of inflation, so it’s critical to regularly review your finances. Keep track of your spending to make sure you are not going overboard or spending money on useless items,” says Parbhoo.